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Driving efficiency and savings in international payments

Peaches from Australia, wild mushrooms from Europe, Russet potatoes from the US – these are some of the produce that homegrown enterprise FreshDirect buys from suppliers all around the world.

But because it sources for 95 per cent of its produce from around the world, paying overseas suppliers was one of the company’s biggest headaches when they started 17 years ago, according to co-founder and director Desmond Lee.

He recalls flipping through newspapers and calling banks every day to get the best exchange rates before making international transactions. Due to exchange rate volatility, small currency changes could seriously affect the company’s margins, he shares.

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“We had to look at trade terms and different payment schemes because we deal with products with low margins and high perishability,” says Mr Lee. Time was of the essence – any delay in payment could result in the fresh produce being held longer than expected and possible wastage.

Another local SME that encountered problems when making international payments is Wilson Cables, a manufacturer of cables and accessories for the construction and shipping industry, set up in 1974. The company gets its supplies from Thailand, China and the Middle East and exports more than half of its goods to ASEAN countries including Cambodia, Indonesia, and Myanmar.

Its Financial Controller and Head of HR and Admin, S. Ramachandran, says he faced issues including suppliers not receiving payment overseas, or not receiving correct payment details. “When we process a payment to our supplier in the morning, we hope they get it within the same day. When payments get delayed, our goods are held up at the port. This affects our operation timeline and results in additional charges for us,” he says.

FreshDirect and Wilson Cables aren’t alone.

Associate Professor Randolph Tan from the Singapore University of Social Sciences notes that many SMEs, compared to large multinationals, lack the experience and understanding needed to make sound cost-benefit assessments on how to extend competitive credit terms while managing credit risks.

He says: “As a result, the challenge of dealing with cross-border payments becomes a technical minefield that hampers their capacity to expand beyond our borders.”

Fluctuating exchange rates and delayed payments to suppliers are just two challenges SMEs face when making cross border payments.

SMEs also tend to incur higher processing and payment costs when they use traditional forms of payments like cheques, letters of credit, local currency loans and overdraft facilities – the most common methods of international payment in Singapore.

Furthermore, these manual methods can be difficult to track for suppliers, which could delay payment, incur additional penalty fees and lead to inventory being held up at the ports.

The lack of readily available assistance from financial institutions is another issue. For some SMEs, not having access to relationship managers or direct points of contact to support them with cross border payments can be especially stressful when problems arise with payments that need to be settled urgently.

“Having a relationship manager as our direct point of contact at American Express helps cut down on the hassle and waiting time when we need to expedite certain international payments,” says Mr Ramachandran.

Associate Professor Tan notes: “If Singapore’s enterprises are to succeed in the future economy, they need international business payments systems which facilitate their growth, instead of impeding such growth.”

Nick Prodanovic, Head, FX International Payments, American Express Singapore says: “SMEs are time-strapped and have limited resources but there are some simple changes they can make to fully utilise the international payment options available to them. Businesses need to review their processes and new payment tools to ensure they are maximising their efficiency. What worked in the past may not be serving them the best now.”

For example, to reduce currency exposure, FreshDirect’s Mr Lee uses spot exchange rates with American Express. This helps him better manage pricing over a period of time. The cost savings can then be passed to customers and helps the company maintain profitability.

“Change can be an uncomfortable process but it is what allows businesses to flourish in the long term. The most successful companies are those who are open to new ways of doing things,” says Mr Prodanovic.